Loan Limits are not a Loan Cap!
Don’t worry if you find the loan limits associated with the VA provisions confusing; even mortgage professionals don’t always fully understand the ins and outs of the program. As such, you may come across a lot of misinformation and misunderstanding, particularly on the Internet.
A very common misunderstanding is that a VA loan limit is the total amount of money you are allowed to take out as a loan. This is not true; there is no upper limit to a VA loan. You can normally take a loan for the maximum your lender is prepared to loan you; this will depend on your property value, the amount of deposit you have, and what level of repayment you can keep up.
The loan limit simply represents the amount that a qualifying serviceman or woman or veteran can borrow without having to make any down payment. For those who qualify, the VA program has two levels of loan entitlement. In most areas, the first level is $36,000 with the second level being $77,275, making a total of $113,275. As the VA acts as guarantor for 25% of the loan, qualifying personnel in most areas can buy properties with loans of up to $453,100 ($113,275 x 4) without having to think about down payments.
This represents a substantial loan, considering no down payments are required. However, real estate is so expensive in some parts of the USA that it still might not be enough to buy the home you need. Because of this, the VA loan limits are higher in more expensive counties, meaning the amount you can borrow without having to make a down payment is higher.
Loan Limits 2018
At present, the most you can borrow without making a down payment is $721,050 in Honolulu County, Hawaii, and $679,650 on the continental US. If you are looking to purchase in one of the high-cost areas, you will have a larger VA loan entitlement. Where normally a VA borrower will have an entitlement of $113,275 (25% of $453,100), in Honolulu County, the borrower will have an entitlement of $180,262 (25% of $721,050). If you’re looking to take out a second loan with the VA, either for a second property or because of foreclosure, this extra entitlement can be a massive plus.
You won’t usually be asked to make a down payment for a VA loan unless the loan amount is higher than the limit for your county. If it is, you must make a down payment of at least 25% of the differential between the loan limit and the price of your property.
As an example, if the loan limit for your county is $679,650, and you want to purchase a property for $779,650, you’ll need to find a down payment of 25% of the $100,000 difference, i.e., $25,000.
VA Jumbo Loans
The different loan limits help to ensure equality for service personnel and veterans looking to buy in areas that are more expensive than average. For the majority of purchases using the VA provisions, the limit for your county will be $453,100. That generally ensures that it is competitive with alternative loan options, and keeps pace with the price of housing.
If you want to borrow more than the limit and qualify to do so, there’s nothing stopping you. If you want to buy a property that costs more than the loan limit for your county (or it might even be below the limit in a high-cost county), you may be looking for what is termed “jumbo” loans. These can be harder to obtain than ordinary VA loans because they require better credit ratings and more assets. A deposit may also be required for this type of loan. However, if you need a large mortgage and can qualify for a “jumbo” loan, this type of loan can be highly advantageous.